PUCO: A case study in regulatory passivity and failure in the face of crisis

The Public Utilities Commission of Ohio has had to deal with two very consequential crises within the scope of its jurisdiction, the House Bill 6 Scandal in electricity, and the Norfolk Southern derailments, particularly the one in East Palestine in transportation.

In both cases, the commission posture has been one of passivity and minimal intervention. While regulatory overreach can be problematic, the PUCO’s tepid, almost disinterested response to these crises is a case study in regulatory failure. While the two situations are different, the pattern of regulatory failure is similar.

The utility bailout scandal

The HB 6 Scandal is, in the sense that a regulated utility has admitted to running a pervasive criminal enterprise — including but not limited to admission of bribing public officials including the commission chair — an extraordinary event.

It seems clear to the most casual observer, that there was something fundamentally flawed in the corporate culture at First Energy that produced the biggest bribery scandal in the history of Ohio, indeed, in the history of regulated utilities in the United States.

Nonetheless, the PUCO  possesses powers designed to deal with such situations.

It can conduct management audits, appoint receivers to oversee the company, or even consider license revocations. It can consider setting rates based on specified performance standards. It can order very specific reporting to fully track the company’s behavior.

Indeed, it could adopt rules prohibiting the bad behavior in the HB 6 scandal. In the past, the PUCO has literally fired the entire Board of Directors of a large gas company for paying above markets prices to an affiliate company for natural gas.

Regardless, the commission did none of those things. Instead, the commission played “small ball” by opening four very narrow inquiries into various micro aspects of the mega malfunction, an approach that both masked the big picture, and enabled First Energy to bob and weave to avoid accountability, a strategy further enabled by Commission rulings that obstructed parties like Consumers’ Counsel from doing serious discovery.

Then, the entire process was shut down, at least for the short term when the U.S. Attorney, acting at First Energy’s request, asked that the all proceedings be halted.

The net effect of the PUCO approach has been to suppress a wholistic analysis, avoid transparency, and largely preclude any consideration of undertaking serious efforts to assure transparency and hold the company accountable and preclude future misbehavior.

Norfolk Southern derailments

In regard to the railroad issues, the PUCO, which was originally established as the Railroad Commission, has lost much of its regulatory authority over the railroads to federal preemption. What it has not lost, however, is its power to investigate safety issues.

It is the only state agency with such powers. Indeed, in a derailment several years ago in Miamisburg that bore many similarities to the East Palestine derailment with toxic emissions, the commission undertook its own investigation and came to fairly quick conclusions as to the cause of the derailment, conclusions that motivated the federal agencies to expedite their efforts, the conclusions of which were the same as those of the PUCO.

Part of the motivation for the PUCO to act as it did, was because, as is the case with Norfolk Southern, the railroad in Miamisburg — the Chesapeake and Ohio — had had a string of recent derailments in Ohio.

The current commission, however, seems to have satisfied itself by sending an observer or two and waiting for the federal government to pursue matters at its own pace.

Once again, the commission has chosen passivity and timidity in a crisis, an approach likely to neither clarify nor rectify.

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Ashley C. Brown served for 10 years as a PUCO Commissioner. He recently retired after 28 years as Executive Director of the Harvard Electricity Policy Group at Harvard University’s Kennedy School. He is co-author of The World Bank’s Handbook on Evaluating Infrastructure Regulation, and has advised governments and conducted training in more than 25 countries on energy markets and regulation.

This commentary was republished from the Ohio Capital Journal under a Creative Commons license.